Work

The Affine Arbitrage-Free Class of Nelson-Siegel Term Structure Models

Year: 2010

Type: article

Abstract: We derive the class of affine arbitrage-free dynamic term structure models that approximate the widely-used Nelson-Siegel yield curve specification. These arbitrage-free Nelson-Siegel (AFNS) models can be expressed as slightly restricted versions of the canonical representation of the three-factor affine arbitrage-free model. Imposing the Nelson-Siegel structure on the canonical model greatly facilitates estimation and can improve predictive performance. In the future, AFNS models appear likely to be a useful workhorse representation for term structure research.

Source: Federal Reserve Bank of San Francisco, Working Paper Series

DOI: 10.24148/wp2007-20

Authors: Federal Reserve Bank of San Francisco, Jens H. E. Christensen, Francis X. Diebold, Glenn D. Rudebusch, Federal Reserve Bank of San Francisco

Institutions: National Bureau of Economic Research, Copenhagen Business School, Federal Reserve Bank of San Francisco, University of Cambridge, University of Chicago, Center for Interuniversity Research and Analysis on Organizations, University of Pennsylvania, HEC Paris, Stanford University

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

OpenAlex ID: W4299402865

FWCI: 3.9

Cites: 40

Cited by: 34

Related to: 10